Most investors are spooked by the month of October. This is probably especially true now because Europe and America are plagued by huge debts, America has high unemployment, and Greece is at risk of defaulting. Global stock markets have been very volatile and we have seen large plunges in the values of shares this year. The advice about whether to go back into the stock market has also been erratic – some economists think that this is a good time to invest while others recommend waiting.
If investors look at the history of stock market crashes in October, they will probably decide to ‘wait and see.’ The worst crashes occurred in 1929, 1987, and 2008. There was also a mini-crash in 1987. Although some economists have written that share prices often start going up in October, it may be best to remain careful during this month!
The Beginning of the Great Depression in October, 1929
People wanted to enjoy themselves and forget the troubles of The Great War in the 1920’s. Most world economies experienced a boom. Everyone thought that investing in the stock market was the fastest way to become wealthy. Flappers and even shoe-shine boys got loans to invest in shares. The market kept surging until September 1929.
The stock market became volatile in September, but no-one took much notice. Shock hit the streets, however, when prices plunged on October 24, “Black Thursday.” The ticker couldn’t keep up with the falling prices. Margin calls were sent out and people began selling in the morning.
The panic abated somewhat when a group of bankers invested a large sum in the market. People became hopeful again and stopped selling. Many saw the low prices as an opportunity to invest in the market. Unfortunately, the tide couldn’t be stemmed and this was a “dead cat bounce” in stock market parlance.
On October 29, investors saw their worst fears realized as the stock market crashed. This time no bankers came to the rescue. Margin calls were sent out, people kept selling, and panic finally took over. This was the beginning of the Great Depression which caused gloom all over the world as the numbers of unemployed and people forced into poverty grew. Share prices didn’t start rising again until 1932.
The Crashes of October 19, 1987 and 1989.
On October 19, 1987 the Dow Jones fell 508 points. This was the biggest one-day percentage decline in stock market history. Fortunately, this was a short, sharp fall and the stock market made a quick recovery.
The mini-crash of the stock market on Friday October 13, 1989 spooked superstitious investors. Many stock market analysts thought that this was caused by the failure of a buyout deal for UAL Corporation (the parent company of UAL). This led to a collapse in the junk bond market. The Dow Jones fell 190.58 points on that day.
The October Stock Market Crash of 2008
A spate of bad loans and huge debts saw the end of investor exuberance in 2008. The fall of Lehman Brothers, a large investment bank, in September began the panic that led to the Global Financial Crisis, from which the world has not yet recovered. Panic selling led to the Dow Jones losing 18.1 per cent in the week which began on October 6, 2008. The stock market had a 46 per cent tumble from its October, 2007 high.
No one knows why most stock market crashes occur in October. Some think that it may be something to do with the traditional reaping of the harvest in autumn or preparing for the long winter ahead. Investors will probably always be wary of “Red” or “Black” October.
Sources
- On The Lookout For A Red October – ETF Centre
- What Spooks The Share market In October?
- Dealing With Another Black October
- Stock Market Goblins of October
Lisa Sanderson - Lisa has been a freelance-writer for many years. She used to write for the topic, British Social History, for Suite 101 under the ...
